Simple question

[The_Dog]

I have a simple question, and I think I already know the answer but would appreciate confirmation.

If I was to buy a property for trading using a line of credit, am I correct in thinking that the interest paid on that money (albeit only for say 10 weeks) is NOT tax deductible?

My thinking is, interest is deductible when used for income generating purposes, ie rental, and this is not the case with a trade.

Am I correct?

The Dog

[xris]

I have a simple question, and I think I already know the answer but would appreciate confirmation.

If I was to buy a property for trading using a line of credit, am I correct in thinking that the interest paid on that money (albeit only for say 10 weeks) is NOT tax deductible?

My thinking is, interest is deductible when used for income generating purposes, ie rental, and this is not the case with a trade.

Am I correct?

The Dog

Hello Dog,

But it is for generating income isn't it? - The profit to you on sale. The loan (with interest) enabled you to generate that income in the form of the capital profit? Or am I missing the point here?

xris

[Cliffy]

Definitely tax deductible. It is a cost of acquiring your stock to trade.

[Dean@Massiveaction]

Hi Dog. I am surprised that you thing not tax deductible. How can costs of buying stock to create income not be tax deductible?? Definitely is :-)

[The_Dog]

OK, thanks people that's clear now.

I think I'm hung up on capital and revenue being different things, where they are simply different sides of the same coin.

I'm interested in starting up a BNZ acount which effectively "off-sets", a concept I'm familair with here in the UK. I'm also keen to keep my business dealings and private dealing separate for taxation purposes. Furthermore, I'm keen to keep (future) trading matters separate from my private, but have been advised setting up a trust is easier once I'm back in NZ (otherwise it has to be an 'overseas trust' which complicates things.)

I was thinking to use the BNZ as a private account off-setting against a business loan but the tax implications (now clarified) means this is not going to work.

I guess I'll speak to my accountant. Perhaps it's best to hold my horses with the BNZ and set it up within a trust.

But.... I want things to happen NOW!! I want to take Massive Action!!!

Oops, Sorry Dean, I've just infringed your copyright

The Dog

[simoncoles]

The Dog,

Commenting on a second point you make.
You can loan (via your line of credit) your trust the money to trade a property from an external entity being yourself personally. or LAQC

Often the line of credit is developed from a persons existing B&H's but the loan needs to be to their trading trust. As long as you properly document the loan to your trading trust this is acceptable I understand.

The usual caveats about consulting professional advice apply!!

Simon